Ahlawat & AssociatesAdvocates

Cabinet decides to abolish foreign investment promotion board

Cabinet decides to abolish foreign investment promotion board

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its approval to the phasing out of the Foreign Investment Promotion Board (“FIPB”).

FIPB was an inter-ministerial body under the finance ministry’s Department of Economic Affairs that processed FDI proposals and made recommendations for government approval. It was set up after India embarked on its first market reforms in 1991 and was initially constituted under the Prime Minister’s office and subsequently shifted under the Department of Economic Affairs in the Ministry of Finance. FDI proposals up to Rs. 5,000 crore were cleared by the FIPB. However, proposals above Rs. 5,000 crore would go to the Cabinet Committee on Economic Affairs.Road ahead after abolition of FIPB:

The work relating to processing of applications for FDI and approval of the Government thereon under the extant FDI Policy and FEMA, shall now be handled by the concerned Ministries/Departments in consultation with the Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce, which will also issue the Standard Operating Procedure (SOP) for processing of applications and decision of the Government under the extant FDI policy.

Proposals in sensitive sectors will require the Home Ministry’s approval.

The FDI proposals above Rs 5,000 crore would continue to be cleared by the Cabinet Committee on Economic Affairs.

Conclusion:

After the liberalisation of FDI Policy since 2014, 90% of FDI was coming in via the automatic route, without the need for FIPB clearance, thus the move to phase out the FIPB is an administrative clean-up aiming to promote the principle of ‘Maximum Governance and Minimum Government’ by removing repetitive steps for approval and ensuring that investors deal with a single authority and providing greater ease of doing business.